On 6 August 2015, the Competition and Markets Authority (CMA) announced that it had sent a statement of objections to a major pharmaceutical producer and a large distributor, over their pricing of an anti-epilepsy drug. The case is significant as high or excessive prices are thought to be common in the pharmaceutical sector.

The CMA have based their objections on a breach of Chapter II of the Competition Act 1998, that being the prohibition against an abuse of a dominant position. Therefore the CMA believes the producer and the distributor to both have significant market shares in the manufacture and distribution of the particular drug, a common situation in the pharmaceutical industry where intellectual property rights are enforced vigorously.

The CMA alleges that the producer sold the distribution rights to the distributor (when the drug became generic), but carried on producing the drug for the distributor to sell. After this transition, the price of the drug is alleged to have risen by at least 8 times on supply to the distributor, who then further inflates the price to sell at least 25 times the historic price. The case is further made unusual by the counter-logic that the price of the drug increased many times when it was made generic.

It remains to be seen what effect the CMA’s case will have on the industry as a whole. There could be a market failure in operation here due to the fact that the drug increased in price when it was made generic. It indicates a lack of producers in the market. The CMA may feel that by correcting the producer and distributor in their behaviour, the CMA is acting widely to show that it will counter-market failure and high prices by using it’s competition law powers. Conversely, given the complexity of the market and the sheer array of products on offer, pharmaceuticals and their distributors may feel justified in maintaining their pricing structures and counting this latest prosecution as a rare anomaly and bad luck for the parties involved.